Saturday, November 28, 2009

Novelty: A Key to Psychological Change

My first post in this series dealt with the importance of processing market information in novel ways: fresh viewing can lead to new and better ways of doing. (See links included in that first post to assess your own learning styles).

Nowhere is this principle more important than in the process of psychological change. What helps people change in a therapeutic or coaching relationship is novelty: leveraging the power of a positive relationship to help people see themselves and their situations in new ways, so that they can respond differently. (See this post for a more detailed presentation of this idea; see this post for important implications).

In coaching ourselves for trading success, our job is to create new, constructive experiences that disrupt old problem patterns.

So many times, we become locked into behavior patterns. We are afraid to miss market moves, enter markets impulsively, lose money, and then feel even greater needs to participate in moves to make up for what we lost. Round and round we go.

The corrective emotional experience, as therapists call it, is to actually miss a market move and see--first hand--that other moves and other opportunities develop. After all, you can't overcome a fear by avoiding it. The novel experience is to face the fear and find out that the outcomes aren't as bad as you anticipated.

In behaving differently, we experience ourselves in new ways. If I go to the gym for a while, I begin to experience myself as physically fit. That, in turn, influences my energy level, which in turn can enhance my general outlook. Small changes can self-amplify, creating options for thought and action that hadn't been present before.

Suppose I have been haphazard in keeping up with chores at home and in staying in good physical shape. After a while, I begin *feeling* sloppy and undisiciplined, and that carries over into my decision making in markets. If I'm experiencing myself as focused and goal-oriented in my personal life, those same qualities during trading will come naturally.

But I can never talk myself into discipline if most of my life experience is haphazard.

A single new set of experiences can be enough to catalyze change. Becoming more goal-oriented in one sphere of life can provide the energy and optimism to extend that orientation to other life spheres.

If you understand that, you understand that there is no sharp demarcation between working on yourself as a person and working on yourself as a trader. How you experience yourself ultimately shapes how you think, feel, and behave.

Our trading performance always reverts to our personal means. For more on the topic, check out the post on "how to change yourself".


SSK said...

Hello Brett, Excellent post as always! The points you make in this post are probably the single most important aspect of understanding many things that hurt our ability in trading. Using real life opportunities to change who you are and how you think, in the context of trading is a great exercise. The whole world of marketing that we are exposed to everyday are targeted to our inherent impulsive behavior. Many large firms understand that during the first 5 seconds of initial contact with a product dictates the consumers buying decision. This alone speaks quite loudly how that one simple fact can doom traders. I would say understanding that single fact could give a person many opportunities during this holiday season to work on aspects of their personality to positively impact trading. How we think when we shop for food, how much we choose to eat, and what gifts we buy for others during the holidays can help us understand how much we are cognizant of the marketing ploys as we make various decisions, and how successfully we are able to fight one of the many enemies of trading, such as impulsivness. Thanks again, Best, SSK

Gro said...

This is so true.

However, to create novelty, you might need sometimes to act (in a safe environment, like paper trading) to confront your fears.

This is what I did recently and it helped me a lot : I was wondering for a while how to trade actual breakouts. There have been many days where the market would break out of its range, up or down by 7-8 points in 30 minutes and then go into a range for the rest of the day. I felt frustrated for not being able to enter the move in the first place but I was afraid I would end up chasing the market and lose money eventually.

So 2 weeks ago, I took a paper trade during one of those breakouts. I didn't know if my entry was good or not and didn't know where my trade would end (I put a stop, however). Being in position made me react : I didn't have the appropriate information about the market so the questions and their answers popped quickly into my head : "what is happening ? This 5m chart is too slow, I need more detailed information" -> I opened a 1m chart and got the info. "Is the move over ? Isn't it losing steam ?" -> I added a MACD oscillator to find out if there were divergences. "Is it an actual breakout ?" -> I started logging the volume on the 1m chart to compare it to other breakouts (genuine or false).

So yes, I lost paper money that day. But not much (< 1% of my paper account) and in return I learned a lot. By actually acting in the market, I ended up asking and answering the appropriate questions.
I am still sharpening my setup and my rules about how trading a breakout, but it really started that day, by creating novelty : viewing the market as an actor, not a mere observer.

IDkit aka Ana said...

I read with great interest about what you call Psychological Change, Brett.

Every day, I learn new terms and you may not have heard of Psychological Captial, which I thought of when I read about Psychological Income. Please read this at

and about the term Deep Practice at

Hope you had a good relaxing holiday.

IDkit aka Ana said...

Need to correct my earlier comment, Brett.

What I meant you may have heard of PysCap while I had in my head how I look at PsyCap as 90% and PsyInc as 10%.

Sorry about this.